The world's foreign exchange markets are bracing themselves for fresh turbulence after weekend talks at the International Monetary Fund failed to ease fears of a currency war.
Dominique Strauss-Kahn said the time for talk was over after the fund's main policy body made little progress in settling the row between Washington and Beijing over China's alleged manipulation of its currency.
"The problem is that we can talk and talk and talk," said the IMF's managing director after it released a communique pledging member countries to "move toward a more balanced pattern of global growth, recognising the responsibilities of surplus and deficit countries".
Strauss-Kahn fears a "race to the bottom" as countries seek to depress the value of their currency to export their way out of recession.
He said: "The language is ineffective. The language is not going to change things. Policy has to be adapted. What we need is real action, and I don't believe that this action can be done in another way, in a non-co-operative way."
Finance ministers and central bank governors expressed concern about the deteriorating atmosphere, which has seen Japan weaken the yen and China warn that American demands for a sharp revaluation of the renminbi would lead to social and economic unrest. Last week, the dollar fell sharply against the yen and the euro.
Tim Geithner, the US treasury secretary, kept up the pressure on Beijing following the meeting of the IMF's international monetary and financial committee, the organisation's steering body.
He said the IMF should increase the "candour" of its surveillance of the exchange rate policies of member countries, which was leading them to build huge foreign exchange reserves.
"Excess reserve accumulation on a global scale is leading to serious distortions in the international monetary and financial system, and is inhibiting the international adjustment process," Geithner said.
He added that the big emerging countries, like China, should only have their demands met for a greater say in the running of the IMF if they moved towards "more market-oriented exchange rate policies that will reduce reliance on exports and strengthen domestic demand".
The US was supported by European and Japanese policymakers. Olli Rehn, the European commissioner for economic and financial affairs, said: "Going forward, risks of excess volatility and disorderly movements in exchange rates should be avoided in view of their adverse implications for economic and financial stability. In this respect, the Chinese authorities are encouraged to implement soon a more flexible exchange rate regime for the renminbi."
Yoshihiko Noda, Japan's finance minister, said: "A massive flow of funds from developed countries into emerging markets has caused the appreciation of local currencies and a surge in asset prices in emerging markets. Furthermore, these emerging markets are unable to implement monetary easing policies out of fear of renewed inflation.
"It is not sustainable that certain countries achieve growth while imposing costs on other countries."
China's deputy central bank governor, Yi Gang, said China was committed to a more flexible exchange rate but added that action was also required by developed countries such as the US in order to alleviate the global imbalance between surplus and deficit nations. Meanwhile Thailand's finance minister, Korn Chatikavanij, said: "The fact that there seems to be lack of agreement as to what needs to be done at the global level with the major economies is of concern to us.
"There seems to be a race to the bottom – US dollar, euro, renminbi – and that's very problematic."
At Beijing's insistence, the IMF communique said a priority was to have "strong and even-handed surveillance to uncover vulnerabilities in large advanced countries." Emerging countries have long complained that the fund has taken a soft approach with the US, reserving its stiffest policy advice for poor nations.
Strauss-Kahn said that instead of looking at the big five economies – the US, China, Japan, the euro zone and Britain – individually, the IMF would study them collectively to ensure policy advice was consistent with reducing global imbalances. He added that a deal to provide emerging economies with more clout at the fund was only "days or weeks away," but said power came with responsibility.
"What I have heard, and which makes sense, is that when countries want a bigger quota – to have more say, more voice, more influence at the IMF – then they must also share the problems of the whole," said Strauss-Kahn.
"You cannot be at the centre and be a free rider. The more you are at the centre, the more you need to play your part in stabilising the whole system.
Oxfam spokesman Mark Fried, said: "Thousands of people have flown in from all over the world for these meetings, and there's been no movement on any issues of significance.
"There's been a fight about currencies, and developing countries seem to have been forgotten: and hard decisions about reforming the way the IMF does business have been deferred."
